Commentary and Tracking of a Portfolio of Stocks using approach from "The Little Book that Beats the Market" by Joel Greenblatt aka Magic Formula Investing

Saturday, December 23, 2017

Weekend Update - MFI Diary 12/23/17

Weekend Update 12/23/17

Well, since it is December 23rd, I clearly need to wish all my readers, young and old, Happy Festivus! Feel free to air your grievances in the comments section. :)

You have found your way to the MFI Diary. This is a blog following the investment approach described by Joel Greenblatt in The Little Book That Beats The Market. I have been writing this blog and following his investment approach since early 2006.

I did create a guide recently for new readers to my blog that point you to some key/interesting posts. I encourage you to give it a whirl Guide To New Readers). (PS - let me know, in the grievance section, if this link does not work). Of course, I have to have a disclaimer - I am just a guy with a spreadsheet and not a stock advisor. You should do your own due diligence before acting on anything you read here.

Promised Santa From last week

(

Any opinions you read are my own unless they end up being really bad.

The Past WeekIt was a very solid week for me, up about 1% overall while the benchmark was pretty much flat. Thus, for me at least, there was a Santa Claus rally! Hoozah! The table below shows how everything is standing as we head into a well-deserved three day weekend.

Component

YTD

4th Q

Overall

+16.18%

+2.35%

MFI Select

+38.19%

+11.25%

MFI Formula

+19.49%

+9.06%

Miscellaneous

+3.19%

-3.56%

Dividend

+13.22%

-0.53%

R3K

+20.60%

+6.13%

MFI Index

+5.81%

+1.47%

GARIX

+10.31%

+5.17%

The keen-eyed reader will note my MFI Select and Miscellaneous (finally!) portfolios had a good week. Here are how the individual stocks in my two real money MFI portfolios did during the week:

Portfolio

Stock

Last
Week

Current

Dividend

Change

Formula

SYNT

25.57

24.73

-

-3.3%

Formula

HPQ

20.92

21.26

-

1.6%

Formula

GILD

75.57

72.71

-

-3.8%

Formula

CSCO

38.19

38.55

-

0.9%

Formula

OMC

74.41

73.61

-

-1.1%

Formula

GME

18.34

18.29

-

-0.3%

Formula

CA

33.71

33.52

-

-0.6%

Formula

DIN

49.13

49.95

-

1.7%

Formula

TGNA

22.71

24.04

-

5.9%

Formula

BKE

22.70

23.90

-

5.3%

Formula

RGR

52.50

55.20

-

5.1%

I know this actually looks pretty good (this is my Formula portfolio), but recall the stocks are listed from largest holding to smallest (generally). So sadly, my three big winners on the week (TGNA, BKE and RGR) are also the three smallest holdings. And the two worst (SYNT and GILD) are amongst my largest holdings (sniff). So this is basically breakeven even though the straight average is up 1%.

Portfolio

Stock

Last
Week

Current

Dividend

Change

Select

SIMO

52.96

52.89

-

-0.1%

Select

MSGN

19.80

20.30

-

2.5%

Select

YY

108.54

114.60

-

5.6%

Select

CELG

109.41

106.33

-

-2.8%

Select

EVC

7.50

7.40

-

-1.3%

Select

ICHR

25.18

25.07

-

-0.4%

Select

AKRX

32.36

32.08

-

-0.9%

Select

VIAB

30.24

32.23

-

6.6%

Select

RHI

55.26

55.68

-

0.8%

Select

MD

51.10

53.52

-

4.7%

Select

QCOM

64.76

64.73

-

0.0%

Select

KLAC

105.63

109.32

-

3.5%

Select

TIME

18.50

18.55

-

0.3%

Select

GHC

565.85

558.20

-

-1.4%

Select

WNC

19.31

20.92

-

8.3%

Select

RGR

52.50

55.20

-

5.1%

Select

TGNA

22.71

24.04

-

5.9%

Here, I had some decent gainers amongst my larger holdings (YY) and this portfolio is not quite as concentrated (recall in my formula portfolio I pick via random # generator and can/will get multiple positions). So I was up almost 2 points on the week.

MFI Select

As my readers know, I have two real money MFI portfolios: (1) Select and (2) Formula. For the Select portfolio, I have 4 tranches of stocks, with each tranche having 5 stocks. So up to 20 stocks at any time. I have been running this portfolio since August 2012 after a one year hiatus where I quit MFI investing for a year out of frustration with sub par gains (seeing that again this year - if you look at my MFI Index in blue box above, you'll note my Index, 50 stocks from start of year, is up less than 6%). Anyway, I regrouped, had a good think and started fresh in August 2012. As the "Select" name suggests, I can pretty much select any stocks I want. I even run my own screens, so not just tied to official screen. (I publish top 200 from my internal screen here once a month or so). Here is how the portfolio has done month by month (assuming it started out with $100,000 spread evenly over the four tranches):

Date

Differential

MFI
Value

R3K Value

12/1/2012

-2.20%

99,765

101,965

1/1/2013

-1.78%

102,798

104,575

2/1/2013

-2.26%

102,594

104,856

3/1/2013

-2.23%

102,881

105,114

4/1/2013

-0.43%

106,804

107,234

5/1/2013

2.00%

110,423

108,423

6/1/2013

4.75%

115,831

111,085

7/1/2013

4.29%

114,888

110,597

8/1/2013

6.91%

124,799

117,889

9/1/2013

10.46%

124,536

114,079

10/1/2013

19.67%

138,655

118,990

11/1/2013

19.75%

143,514

123,764

12/1/2013

23.70%

150,105

126,405

1/1/2014

26.63%

157,138

130,503

2/1/2014

24.70%

150,619

125,918

3/1/2014

25.66%

158,116

132,458

4/1/2014

30.38%

162,991

132,616

5/1/2014

29.65%

162,428

132,779

6/1/2014

31.44%

167,001

135,559

7/1/2014

39.23%

177,971

138,740

8/1/2014

31.13%

167,054

135,922

9/1/2014

35.90%

177,792

141,892

10/1/2014

29.38%

168,321

138,944

11/1/2014

26.14%

168,810

142,666

12/1/2014

30.22%

176,420

146,198

1/1/2015

28.17%

174,306

146,140

2/1/2015

20.63%

162,833

142,201

3/1/2015

25.15%

175,476

150,324

4/1/2015

29.95%

178,565

148,612

5/1/2015

37.31%

186,655

149,348

6/1/2015

51.53%

202,897

151,371

7/1/2015

62.69%

211,437

148,743

8/1/2015

40.75%

192,117

151,369

9/1/2015

36.41%

178,603

142,195

10/1/2015

43.12%

181,175

138,052

11/1/2015

69.02%

217,959

148,936

12/1/2015

73.49%

223,435

149,946

1/1/2016

63.33%

209,514

146,186

2/1/2016

49.49%

187,428

137,934

3/1/2016

56.48%

194,415

137,934

4/1/2016

47.34%

195,770

148,430

5/1/2016

46.38%

194,301

147,923

6/1/2016

51.44%

201,999

150,558

7/1/2016

50.41%

201,092

150,680

8/1/2016

52.72%

207,223

154,501

9/1/2016

67.04%

222,481

155,446

10/1/2016

42.98%

198,563

155,582

11/1/2016

41.86%

195,726

153,863

12/1/2016

45.92%

202,775

156,859

1/1/2017

45.60%

209,503

163,936

2/1/2017

45.20%

212,330

167,146

3/1/2017

48.80%

222,583

173,829

4/1/2017

55.70%

229,473

173,735

5/1/2017

55.80%

231,497

175,712

6/1/2017

53.40%

230,599

177,203

7/1/2017

60.28%

239,060

178,782

8/1/2017

57.76%

239,924

182,163

9/1/2017

68.85%

251,265

182,419

10/1/2017

75.60%

262,489

186,886

11/1/2017

68.17%

259,061

190,888

12/1/2017

84.17%

280,887

196,716

Current

95.89%

294,446

198,560

It has been a skyrocket this year, up from 209,503 to $294,446. That is 41%. It now lead the benchmark (Russell 3000) by almost 96 percentage points... which is about a $100,000 lead. So the reboot has been a success. Is it just lucky? Or is it working? You always wonder.

Here are the current open tranches:

2/1/2017

Start

Current

Dividend

Pct
Gain

R3K
Gain

AKRX

$19.10

$32.08

$0.00

68.0%

18.5%

YY

$41.08

$114.60

$0.00

179.0%

18.5%

KLAC

$85.11

$109.32

$2.26

31.1%

18.5%

WNC

$17.65

$20.92

$0.18

19.5%

18.5%

RGR

$52.75

$55.20

$1.36

7.2%

18.5%

Totals

61.0%

18.5%

5/6/2017

Start

Current

Dividend

Pct
Gain

R3K Gain

WSTC

$24.15

$23.50

$0.00

-2.7%

12.4%

TGNA

$25.75

$24.04

$0.21

-5.8%

12.4%

TIME

$15.05

$18.55

$0.08

23.8%

12.4%

MSGN

$23.55

$20.30

$0.00

-13.8%

12.4%

QCOM

$54.93

$64.73

$1.71

21.0%

12.4%

Totals

4.5%

12.4%

8/15/2017

Start

Current

Dividend

Pct
Gain

R3K Gain

GHC

$591.10

$558.20

$1.27

-5.4%

9.4%

ICHR

$19.80

$25.07

$0.00

26.6%

9.4%

MD

$43.00

$53.52

$0.00

24.5%

9.4%

SIMO

$43.05

$52.89

$0.30

23.6%

9.4%

RHI

$44.15

$55.68

$0.48

27.2%

9.4%

Totals

19.3%

9.4%

11/15/2017

Start

Current

Dividend

Pct
Gain

R3K Gain

MSGN

$16.67

$20.30

$0.00

21.8%

4.3%

CELG

$100.60

$106.33

$0.00

5.7%

4.3%

EVC

$5.78

$7.40

$0.05

28.9%

4.3%

SIMO

$46.88

$52.89

$0.00

12.8%

4.3%

VIAB

$24.41

$32.23

$0.20

32.9%

4.3%

Totals

20.4%

4.3%

Three of the four are solid beats. And even May has made a great comeback. You will see I have doubled down on a few stocks like MSGN and SIMO. The key (in my view) has been to avoid stinker stocks, which I define as losing 30% or more. These are often stocks that do not have sustainable earnings (as seen through my backtesting), so my number 1 criteria is looking to see whether earnings are driven by one or two unsustainable blips.

Here is a table that shows aggregate results of all my tranches as well as annualized IRR:

Category/Tranche

August

November

February

May

Total

Initial Investment

25,000

25,000

25,000

25,000

100,000

Current Tranche

19.3%

20.4%

61.0%

4.5%

24.7%

Previous Tranche

-0.1%

42.6%

10.7%

19.1%

23.6%

Tranche -2

2.8%

8.0%

-14.3%

-25.2%

-7.2%

Tranche -3

11.2%

69.4%

8.5%

18.3%

26.8%

Tranche -4

41.4%

14.2%

78.3%

33.0%

41.7%

Tranche -5

14.1%

43.7%

0.0%

0.0%

14.5%

MFI Overall Gain

119.9%

416.2%

195.4%

46.4%

194.4%

Current Balance

54,971

129,038

73,841

36,596

294,446

R3K Current Tranche

9.4%

4.3%

18.5%

12.4%

11.1%

R3K Overall Gain

109.5%

113.8%

91.6%

79.3%

98.6%

R3K Balance

52,382

53,442

47,908

44,828

198,560

Annualized
IRR

15.8%

37.9%

24.8%

8.6%

21.8%

So you can see my four current tranches are up an aggregate 24.7% versus R3K 11.1%. A very satisfactory margin.

MFI Formula

This is my second portfolio of real money. As the name suggests, this approach is formulaic. I lay it out and give an example in my post earlier this week (Final week for 12/31/16 tranche in sidebar on left). Same tables.

Date

Differential

Value

R3K Value

10/1/2014

0.00%

100,000

100,000

11/1/2014

1.63%

102,288

100,658

12/1/2014

0.30%

101,375

101,075

1/1/2015

-0.33%

100,664

100,995

2/1/2015

1.67%

101,281

99,611

3/1/2015

3.62%

106,073

102,454

4/1/2015

5.09%

106,781

101,695

5/1/2015

5.78%

107,859

102,077

6/1/2015

5.08%

108,213

103,134

7/1/2015

4.82%

106,423

101,604

8/1/2015

3.71%

107,112

103,404

9/1/2015

4.38%

101,523

97,139

10/1/2015

6.39%

100,703

94,312

11/1/2015

2.93%

104,835

101,907

12/1/2015

-3.48%

99,443

102,926

1/1/2016

-3.36%

96,830

100,012

2/1/2016

-0.72%

93,797

94,367

3/1/2016

4.07%

98,588

94,367

4/1/2016

0.34%

102,371

101,548

5/1/2016

-1.91%

99,774

101,200

6/1/2016

-0.42%

103,145

103,568

7/1/2016

-0.19%

103,022

103,216

8/1/2016

2.56%

109,419

106,857

9/1/2016

-0.34%

106,704

107,048

10/1/2016

-0.85%

106,377

107,230

11/1/2016

0.42%

105,421

105,003

12/1/2016

1.62%

110,705

109,088

1/1/2017

1.57%

113,406

111,832

2/1/2017

1.32%

114,809

113,486

3/1/2017

-5.09%

112,930

118,024

4/1/2017

-1.86%

116,227

118,091

5/1/2017

1.11%

120,403

119,296

6/1/2017

-2.65%

117,824

120,472

7/1/2017

-2.40%

119,144

121,545

8/1/2017

-1.96%

121,873

123,828

9/1/2017

-6.09%

117,879

123,973

10/1/2017

-2.56%

124,448

127,007

11/1/2017

-3.85%

125,890

129,739

12/1/2017

-0.97%

132,616

133,585

Current

-0.66%

134,173

134,837

You'll note I started this approach in October 2014. So far it is a dead heat with the Russell benchmark. It is way out performing MFI in general. I still have faith in it (actually both approaches). I have increased my $ to MFI by about 35% in 2017 and will do the same in 2018. So I am truly eating my own cooking.

Here are the four open tranches (just 4 trading days left on first one):

12/30/2016

Start

Current

Dividend

Pct
Gain

R3K
Gain

GILD

$71.69

$72.71

$2.08

4.3%

20.5%

HPQ

$15.00

$21.26

$0.53

45.3%

20.5%

TGNA

$21.33

$24.04

$0.35

14.4%

20.5%

CA

$31.99

$33.52

$1.02

8.0%

20.5%

SYNT

$19.79

$24.73

$0.00

25.0%

20.5%

Totals

19.4%

20.5%

4/1/2017

Start

Current

Dividend

Pct
Gain

R3K Gain

BKE

$18.45

$23.90

$0.75

33.6%

14.2%

CSCO

$33.76

$38.55

$0.87

16.8%

14.2%

GILD

$67.50

$72.71

$1.56

10.0%

14.2%

OMC

$85.53

$73.61

$1.65

-12.0%

14.2%

SYNT

$16.76

$24.73

$0.00

47.5%

14.2%

Totals

19.2%

14.2%

7/1/2017

Start

Current

Dividend

Pct
Gain

R3K Gain

CSCO

$30.98

$38.55

$0.29

25.4%

10.9%

GME

$20.95

$18.29

$0.76

-9.1%

10.9%

HPQ

$17.60

$21.26

$0.27

22.3%

10.9%

RGR

$60.70

$55.20

$0.44

-8.3%

10.9%

SYNT

$16.21

$24.73

$0.00

52.6%

10.9%

Totals

16.6%

10.9%

10/1/2017

Start

Current

Dividend

Pct
Gain

R3K Gain

DIN

$43.14

$49.95

$0.97

18.0%

6.2%

GILD

$82.85

$72.71

$0.52

-11.6%

6.2%

GME

$20.50

$18.29

$0.38

-8.9%

6.2%

HPQ

$20.22

$21.26

$0.13

5.8%

6.2%

OMC

$74.80

$73.61

$0.55

-0.9%

6.2%

Totals

0.5%

6.2%

Looking at stock names here, you will see more multiple stocks than "Select". I think I have SYNT 3 times. This happens as typically the filter only leaves 9 to 14 stocks and then I randomly pick five. Many quarters have duplicate stocks (like CSCO is almost always on list).

Then here is table showing aggregate results:

Category/Tranche

October

January

April

July

Total

Initial Investment

249,820

249,939

250,180

249,728

999,667

Current Tranche

0.5%

19.4%

19.2%

16.6%

14.0%

Previous Tranche

7.0%

9.3%

25.2%

26.7%

16.5%

Tranche -2

5.5%

11.0%

-0.2%

-12.5%

1.0%

Tranche -3

0.5%

0.0%

0.0%

0.0%

0.1%

MFI Overall Gain

14.0%

44.8%

48.8%

29.3%

34.2%

Current Balance

284,680

361,916

372,301

322,835

1,341,732

R3K Current Tranche

6.2%

20.5%

14.2%

10.9%

12.9%

R3K Overall Gain

42.4%

34.6%

33.3%

29.1%

34.9%

R3K Balance

355,865

336,530

333,463

322,506

1,348,364

Annualized
IRR

4.1%

13.2%

15.7%

10.9%

11.0%

I am ok with 11% annualized IRR and encouraged that current tranches are beating the benchmark 14.0% to 12.9%. As I said, next week my new tranche will get 35% bump in investment dollars (I will actually start new tranche on January 2nd).

Dividend Portfolio

If you are here to read about my Magic Formula thoughts, I am done. I will now talk about my other two portfolios, Dividends and Miscellaneous. My Dividend is actually my largest portfolio. I am retired and it has the purpose of spinning off income for my retirement.

So I am not as focused on capital gains as income. I will also be the first to admit that I do stretch a bit for yield - so this is not a widows and orphans dividend portfolio (note I keep right now a 40% cash hoard, as market is extended... though that may drop to 30% by end of 2018 when I increase MFI allotment). Here is how my portfolio shapes up, I did make one change this week - selling GLDI and buying AMID.

Dividend
Stocks

Start

Current

Divvy

Overall Pct
Gain

Weekly Pct
Gain

9/30/17 Price

Yield

OIBAX

5.91

5.94

0.17

3.3%

0.3%

5.95

4.0%

KCLI

48.89

45.10

0.33

-7.1%

-1.1%

49.75

2.4%

KNOP

21.30

20.30

-

-4.7%

0.2%

21.44

10.2%

TK

6.20

9.18

0.08

49.5%

0.4%

8.93

2.4%

CPLP

3.54

3.39

0.08

-1.9%

0.9%

3.50

9.4%

JQC

8.18

8.20

0.62

7.9%

0.5%

8.49

7.0%

ISBC

13.25

14.02

0.15

7.0%

-0.8%

13.64

2.6%

EVG

14.46

14.25

0.33

0.8%

1.8%

14.24

6.4%

LADR

13.01

13.60

0.62

9.3%

-0.9%

13.78

9.3%

FDEU

18.40

18.95

0.82

7.4%

1.0%

19.42

7.7%

NS

37.98

29.65

0.82

-19.8%

-2.9%

40.59

14.8%

TGP

17.89

20.05

-

12.1%

3.9%

17.85

2.8%

RLJ-PA

28.45

27.50

0.49

-1.6%

0.4%

27.82

7.1%

PSXP

47.39

52.04

1.03

12.0%

4.4%

52.56

5.0%

NRZ

16.56

18.28

0.67

14.4%

-0.1%

16.73

10.9%

SBRA

22.28

18.71

0.91

-11.9%

-6.0%

21.94

9.6%

RILY

15.58

18.55

0.21

20.4%

-3.4%

17.05

0.9%

DSL

19.47

20.15

1.80

12.8%

0.1%

21.25

8.9%

OCSI

8.68

8.60

0.38

3.5%

1.1%

8.80

8.8%

TGONF

11.04

13.65

1.79

39.9%

3.6%

12.80

5.1%

AMID

13.25

13.35

-

0.8%

0.8%

13.25

12.4%

DHF

3.34

3.33

0.19

5.2%

0.6%

3.53

8.5%

MAC

65.01

65.20

-

0.3%

-0.4%

65.01

4.5%

O

25.61

55.85

20.93

199.8%

-2.7%

57.19

4.6%

Totals

5.9%

0.2%

6.6%

So up 20 basis points. My new dividend index was down 50 basis points, so can't be unhappy with that. I moved to AMID as GLDI is a gold play and I now have a gold portfolio under Misc. Also, I note MLPs have really been beaten down in 2017 and tax loss selling seems to have exacerbated that down the stretch. With AMID (and NS) I expect them to start bouncing back after that abates.

Miscellaneous

It probably is not an uplifting thing to do, but I track (often) how stocks do after I sell them. And while my Misc approach has struggled, stocks that I have sold from my Miscellaneous portfolio have spiked post my selling. Here are some examples of the best ones:

BAC Warrants: +28%

SN: +18%

LPG: +14%

GNRT: +30%

SBLK +17%

URA: +8%

OSTK: +29%

BLDR: +24%

FIX: +22%

KR: +37%

ITEK: +180% (can't believe that one)

Obviously some of gone down... but in aggregate this "sold" portfolio would be close to my best portfolio.

So that suggests I am better at picking stocks than deciding when to sell. It made me think about my recent posting from Deep Value book about Contrarian approach (do the opposite - link in left sidebar).

So I took a big breathe this week and actually added significantly (usually more than doubling) my five positions I am always thinking about selling: EXXI, AUPH, OMER, SGYP and SELB. Please note that these are all highly speculative positions. I generally don't list my speculative holdings as I would feel terrible if readers lost money by following me. I am taking the risk with eyes wide open. I did get a good start as EXXI popped about 10% on Friday.

Finally, I do have two "baskets" in my Misc holdings: (1) small banks and (2) gold/mining companies. The bank are smallish and generally trading at 1.40 or less of book value. So my play is they are good acquisition targets and should do very well with tax reform. The miners are my hedge against inflation, which I think is a risk.

Bank

Start

Current

Dividends

Change

Yield

ACBI

16.99

17.45

-

2.7%

0.0%

ASB

25.69

26.00

-

1.2%

2.3%

FBIZ

23.69

22.51

-

-5.0%

2.4%

FULT

18.81

18.30

-

-2.7%

3.4%

FNB

14.47

14.23

-

-1.7%

2.5%

MSBI

32.96

32.10

-

-2.6%

2.5%

NRIM

37.47

35.00

0.21

-6.0%

4.1%

PACW

48.30

50.44

-

4.4%

2.0%

SONA

17.13

16.07

-

-6.2%

1.1%

WNEB

10.88

10.85

-

-0.3%

8.3%

Total

-1.6%

2.9%

Miner

Start

Current

Change

TORXF

9.90

9.42

-4.9%

SAND

4.48

5.04

12.5%

NSU

2.38

2.28

-4.2%

KLDX

2.41

2.52

4.6%

KL

14.49

14.73

1.7%

GSS

0.87

0.85

-1.4%

FSM

4.24

5.24

23.6%

EXK

2.14

2.47

15.4%

BTG

2.61

2.94

12.6%

EGO

1.18

1.34

13.6%

Total

7.3%

So that is it. I will post a pretty extensive write up about 2017 next week. I am very happy with where my overall holdings are. I do plan to add to MFI in 2018, but I also plan to really, really stand pat next year. My New Year's resolution is no trades in January except for the kickoff of MFI tranche on the 2nd.